Pivotal Events

The following is part of Pivotal Events that was
published for our subscribers Thursday, September 18, 2008.

SIGNS OF THE TIMES:

Last Year:

"While I was aware that these [questionable] practices
were going on, I had no notion of how significant they had become until
very late. I really didn't get it until late in 2005 and 2006."

- Alan Greenspan on "60 Minutes", September 13, 2007

The year before:

"I suspect that we are coming to the end of the housing downturn, as
applications for new mortgages, the most important series, have flattened
out...I think that the worst of this may well be over."

- Greenspan, October 1, 2006

This Year:

"Auto Sales Tumble, But Industry Says Downturn's Bottom May be Near"

- Wall Street Journal, September 4, 2008

"Russia Falls, But Help Is Coming""Moscow Orders Steps To Stem Slide"

- That was from Friday's Wall Street Journal and this is rather
interesting. There is no way that a communist economist would want to bail
out a filthy capitalist system. He would rather use capitalist rope to hang
the speculators. As no experienced trader would suggest a bailout we can only
assume that Moscow has been infiltrated by liberal economists.

For those who would like to follow this further our "Ropespinner" book report
is attached.

* * * * *

Stock Markets: The non-bailout on the weekend has been described as "Bloody
Sunday". There have been a number of "Bloody Tuesdays", or "Bloody Thursdays" for
example but there never has been one such day on a weekend. This must be an
example of market efficiency.

The discoveries of those who have committed insolvencies continue. The sudden
loss of wealth and of long-standing names in the investment business is an
historical tragedy. Charles Merrill anticipated the 1929 crash and spent most
of that year advising accounts to get out of the market.

Now his legend is being taken over by Bank of America, whose CEO, Ken Lewis,
performed at a press interview on Monday. His attitude was arrogant as he bragged "We
are very good at takeovers and transitions." In 2007 he was reported
as saying "This is the time, I think we go for the jugular, really be
disruptive and take market share."

The feature of any post-bubble contraction is the humbling of aggressive bankers.
On the way up the great mania that blew out in 1772, the Ayr Bank set out to
show old bankers what "new" banking and market share were all about. Adam Smith
used it as an example in his "Wealth Of Nations", which was published in 1776.

During the bubble Samuel Johnson observed "The age is running mad after
innovation; all the business in the world is to be done in a new way; men
are to be hanged in a new way; Tyburn itself is not safe from the fury
of innovation."

When speculation crashed, the diarist, John Evelyn wrote: "The common
faith of a nation is violated. The credit of this bank being broken did
exceedingly discontent the people and never did His Majesty's affairs [i.e.
the country] prosper to any purpose after it."

Well, they bailed out AIG, which seems curiously arbitrary. Is it too big
to fail, or are they just saving taxpayers money by bailing out only every
other disaster?

In the meantime, this season of "immediate financial disorder" has been likely
to run into late October. Typically, post-bubble contractions suffer heavy
liquidation in the fall with severe hits into late October. Also typically,
the initial relief pop can be tested in November.

Often, a hard stock market decline can run for 55 trading days and, using
the Nasdaq, this counts out to late October. There can be some interesting
swings on the way. Once this selling phase is exhausted the market could rebound
into the first quarter. It could be a tradable rally within a cyclical bear
market.

The RSIs are not yet at a level that would prompt a meaningful rally.

On the bigger picture, despite unprecedented and widely-touted intervention
the senior stock indexes are decisively setting new lows. This suggests that
both the stock market and policymaking are failing. This could be summed up
as:

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